European markets set for third successive month of gains

The decision by President Trump to sign the bill supporting the Hong Kong protestors on Wednesday evening prompted some profit taking on European markets yesterday, as well as a predictable backlash from Chinese and Hong Kong officials.

The US President also signed a bill banning the sale of tear gas and rubber bullets to Hong Kong police; however, it was the bill that requires the US State Department to certify once a year that the one country two systems is still working that was the most controversial.

In essence, the signing of the bill was a warning to China that any changes to this system could see the US strip Hong Kong of its US special status.

The decline in equity markets was therefore not totally unexpected, given concerns that it might derail the prospect of a phase one trade deal between the US and China. This seems unlikely under current circumstances, assuming you think a deal is in the offing any time soon, however the disagreements between the US and China do highlight how much of a tightrope there is to walk when it comes to relations between the two big superpowers.

If anything, yesterday’s declines were pretty modest given the circumstances, though one should also take into account the absence of US markets, as well as fairly low volumes. Nonetheless if investors were really concerned about a significant escalation in tensions, yesterday’s price action certainly didn’t show it.

Asia markets this morning have seen more of a decline and this is likely to see a similarly weak European open this morning though some of the losses could also be some month end portfolio readjustment, after a fairly decent November.

It's still expected to be a fairly quiet end to the week and month today with markets in Europe set to finish November in positive territory, and a third successive monthly gain.

On the data front we’ll get to see the final Q3 GDP numbers from France as well as the latest unemployment numbers from Germany, Italy and the EU. We’ll also get the latest EU flash CPI numbers for November.

French Q3 GDP is expected to be confirmed at 0.3%, coming in much better than Germany which is in the depths of a manufacturing recession.

Unemployment levels, however have continued to remain low with German unemployment set to remain at 5% for November.

Even in Italy which has much higher unemployment has seen its jobs numbers come down in recent months, with expectations that we could see a fall to 9.8% for the three months to October. EU unemployment is expected to remain steady at 7.5%.

The European Central Bank could get some welcome news this morning with the latest flash CPI numbers for November expected to show a rise to 0.9% from 0.7% in October, while core prices are expected to nudge up to 1.2% from 1.1%.

These numbers are still well short of the ECB’s mandate of 2%, however they will still be welcomed by a central bank that will shortly see a review into its policy framework, as to how to meet its mandate in the future.

The pound slipped back a touch yesterday, after the initial boost of this week’s YouGov poll. While the results of the poll are encouraging reading for the Conservatives, there are still two weeks to go until polling day and given the polarising nature of both leaders of the main parties, voting intentions are likely to remain fluid right up to polling day.

There is also some UK credit data out with consumer credit for October expected to remain resilient at £0.9bn. Mortgage Approvals are also expected to stay solid at 65.4k.

EURUSD – appears stuck in a tight range with support at the lows this month just above the 1.0980 level. The risk remains for a move below the 1.0980 level, with a break opening up a return to the October lows of 1.0880. Broader resistance can be found at the 1.1180 area and 200-day MA.

GBPUSD – finding some buoyancy above 1.2800, however the resistance at the 1.3000 area continues be a key barrier, while we also have support at the 1.2760 area. The 200-day MA at 1.2680 is a big support level and while above it the scenario remains bullish for 1.3200.

EURGBP – briefly broke below the 0.8500 level and has rebounded a touch but still looks on course to retest the lows this year at 0.8410. Resistance remains at the 0.8670/80 area, and recent range highs.

USDJPY – looks to be heading up towards the 110.00 area and trend line from the 2018 highs at 114.75. Support now comes in at the 108.70 area, as well as interim support at the 108.20 area and 50-day MA.

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